LIVE FUTURES REPORT 07/08: SHFE base metals prices drift lower on lingering trade concerns; zinc drops 1.3%

Base metals prices on the Shanghai Futures Exchange mostly drifted lower during morning trading on Wednesday August 7, with US-China trade tensions continuing to unsettle global markets and dampening risk sentiment.

Zinc was the worst performer so far this morning, with the metal’s most-traded September contract falling to 19,025 yuan ($2,705) per tonne as at 11.05am Shanghai time, down by 240 yuan or 1.3% from Tuesday’s close of 19,265 yuan per tonne.

The other base metals were also down but to more marginal degrees: September copper (-0.17%), September aluminium (-0.07%), September lead (-0.12%), September tin (-0.51%) and October nickel (-0.08%).

“The impact of the recent trade conflict lingered in commodity markets,” John Bromhead, foreign exchange strategist at ANZ Research, said in a morning note.

“The selling eased in base metals markets after China set a stronger currency fixing than the market had been expecting. While the yuan managed to push back below the psychologically important level of 7, concerns that a full blown currency battle could develop remained,” Bromhead added.

In zinc, rising stocks, increased refined metal output globally and lackluster demand all continue to darken the outlook for the metal’s price.

Zinc stocks at SHFE-approved warehouses totaled 75,781 tonnes on August 2, up from 60,704 tonnes on June 6.

According to data from China’s National Bureau of Statistics, zinc output in China surged by 10.3% year on year in June to 513,000 tonnes. This was up by 6.9% from the 480,000 tonnes produced in May.

“The increase in Chinese refined output is in line with the improved smelter utilization rate, favorable treatment charges over the past few months and increased availability of zinc ores outside China. The higher output comes from production ramp-ups at major smelters Zhuzhou, Hanzong and Dongling Group,” Fastmarkets analyst Andy Farida said, adding that global supply should continue to increase in the second half of the year.

At the same time, the demand outlook for zinc continues to look dismal, according to Farida.

“Steelmakers ArcelorMittal and US Steel have announced capacity closures as a result of slowing downstream demand, particularly from the vehicle markets. The closures include galvanized steel capacity and are likely to reduce zinc demand in the regions. Additionally, steelmakers in China’s steelmaking hub of Tangshan had to lower production by at least 20% until the end of July to comply with pollution restrictions,” Farida said.

Other highlights

  • The dollar index, which gauges the strength of the US dollar against a basket of foreign currencies, was down by 0.07% at 97.52 as at 11:22am Shanghai time.
  • The Shanghai Composite Index was down by 2.23% at 2,775.32 as at 11.30am Shanghai time.
  • In data on Tuesday, German factory orders rose by 2.5% in July, outstripping expectations of 0.5% growth and against a decline of 2% in June.
  • May job openings in the US declined to 7.35 million, more than the forecast of 7.34 million but down from April’s 7.38 million.
  • In data on Wednesday, the Reserve Bank of New Zealand delivered a surprise 50-basis-point cut to its official cash rate, now at 1.00%. While a cut was widely expected, the actual cut was larger than had been forecast.
  • Later, German industrial production and a speech from US Federal Open Market Committee member Charles Evans are of note.